Hyundai Bets Longer Elantra Will Help Narrow China Gap

The Langdong, as the new China-only version of the Hyundai Elantra is called, is 4 centimeters (1.6 inches) longer and 1 cm taller than the Elantra sold in other markets. Photographer: Doug Kanter/Bloomberg

June 4 (Bloomberg) -- Hyundai Motor Co. has made steady
progress in China in recent years by courting consumers on
reliability and price. Now it’s betting that a new factory and
an updated version of its top-selling model will give it the
edge it needs to further boost sales of both small cars and more
expensive -- and more profitable -- vehicles.

Hyundai this month will open the 6.5 billion yuan ($1
billion) Beijing plant, where it plans to produce Elantra sedans
that are slightly longer and taller than the current model in a
bow to the Chinese penchant for space and spice in cars. The
company expects the extra legroom and snazzier look to help it
gain market share in China’s small-auto segment, where demand
comes predominantly from people purchasing their first car.
That, in turn, could help Hyundai as those buyers trade up.

“Chinese customers want even what we would consider a
volume car to look as premium as possible,” said Frank Ahrens,
Hyundai’s director of global public relations. “The Chinese
taste is moving up the scale to larger and mid-size cars and we
think we have that for them as well.”

The Seoul-based automaker, which made its first car in
China a decade ago, has increased its share of the world’s
biggest vehicle market to 6.1 percent from 3.9 percent in the
past five years, according to auto association data. The new
plant will boost Hyundai’s local production capacity by 67
percent, helping narrow its gap with industry leaders Volkswagen
and GM.

Outpacing Industry

Hyundai is the fourth-best selling brand in China this
year, behind Volkswagen AG, Nissan Motor Co. and Toyota Motor
Corp., according to industry researcher LMC Automotive Ltd.
General Motors Co.’s Buick is number five and its Chevrolet is
sixth. GM’s combined sales, including its Wuling minivan, make
it the top-seller.

The company delivered 757,583 passenger vehicles in China
last year, a 6.7 percent increase, outpacing the 5.2 percent
rate for the industry, according to the company and the
automakers’ association. Yet that growth lags behind GM, which
sold 645,537 Buicks and 595,068 Chevrolets, up 17 percent and
9.4 percent respectively, GM reports.

The Langdong, as the new China-only version of the Hyundai
Elantra is called, is 4 centimeters (1.6 inches) longer and 1 cm
taller than the Elantra sold in other markets. Its hexagonal
front grille was replaced with a chrome wing-shaped version to
give it a higher-end appearance.

China Competition

Hyundai will face plenty of competition for the attention
of Chinese buyers. Toyota expects to introduce a new compact
model next year in China. Honda has said it plans to double
deliveries in the country over four years and introduce more
than 10 new and revamped models in 2013 to 2015. And Nissan’s
Chinese venture says it plans to invest 50 billion yuan in the
country by 2015.

The company’s first localized offering was the Elantra
Yuedong, its best-selling model since its debut in 2008. The car
was modified with a higher hood, bigger radiator grille and more
dynamic headlamps to suit Chinese tastes.

Hyundai “put in effort to localize their products before
competitors,” said Shin Chung Kwan, an analyst at KB Investment
& Securities Co. in Seoul.

The Elantra, which has become a mainstay of the Beijing
taxi fleet, has helped burnish Hyundai’s reputation for
reliability. Last year, the company boosted the perception of
its cars’ durability when it extended the warranty on engines
and transmissions in China to as long as five years, or almost
twice the average for other automakers, according to
Autoforesight Shanghai Co., an industry research company.

‘Not Extravagant’

Beijing civil servant Li Yu said he chose the Elantra
Yuedong over Nissan’s Sylphy because the Hyundai was cheaper,
reliable and looks better than the price suggests.

“Raising a kid is expensive and we didn’t want to be
extravagant with a car,” said Li, 32, who is saving for his
four-year-old daughter’s college tuition. “The Elantra looks
pretty cool and gives good value for money.”

The 1.6-liter Yuedong starts at 109,800 yuan, 25 percent
less than the Sylphy and 15 percent lower than the Buick
Excelle, according to pricing website cheshi.com. Hyundai’s 1.4-liter Verna, sold as the Accent in other markets, starts at
59,100 yuan. Both the Yuedong and Verna were among the top 10
best-selling models in China in April.

Now, Hyundai wants to move upmarket with more expensive
models that offer higher profit margins. The company is aiming
to increase Chinese sales of its premium Genesis sedans, which
starts at 390,000 yuan, and the even more luxurious Equus.

Luxury Buyers

“We are aggressively marketing our luxury cars there,”
said Hyundai’s Ahrens. “We are really trying to cultivate the
Chinese luxury buyers because clearly that is a real market.”

A reputation for building cheap, small cars, though -- even
reliable ones -- may work against Hyundai’s ambitions of selling
more upscale models, cautions Shaun Rein, managing director of
the China Market Research Group in Shanghai.

“I think they have a challenge,” said Rein. The small-car
segment is ’’too price sensitive so it’s hard to get loyalty
there.’’

So far, the company has lagged in sales of larger cars in
China, delivering 546 Genesis sedans and 455 of the Equus last
year. Audi, VW Group’s luxury nameplate, says it increased sales
in China and Hong Kong by 37 percent to 313,000 vehicles last
year, making the country Audi’s largest market. BMW says its
China sales, including its Mini brand, rose 38 percent to
232,586 vehicles in 2011.

Lacking Capacity

In April, Beijing Hyundai’s president, Baek Hyo Heum,
fretted that the company didn’t ’’have the capacity to
compete.’’ The company is betting that the new factory in
Beijing will supercharge its growth.

The new plant, Hyundai’s third in the country, will
increase the company’s production capacity to 1 million vehicles
a year, from 600,000 currently. The company also plans to make a
revamped Santa Fe sport utility vehicle at the factory to cater
to demand for the fastest-growing segment of the market.

The carmaker has produced more than 3 million vehicles
locally since the first Sonata sedan rolled off the assembly
line in 2002. In that time, China surpassed South Korea and the
U.S. as its biggest market.

“Hyundai has been growing into a very competitive
automaker in China,” said Dong Yang, secretary-general of the
China Association of Automobile Manufacturers. “There are a lot
of reasons you can attribute their success to but overall
speaking, the product and market strategies they adopted were
all right on.”